The Bank of England has been in operation for over 300 years with the aim of supporting the UK economy and Financial System. By maintaining monetary and financial stability, it seeks to promote the good of the people according to its mission statement.
But what does that all mean? Let’s look at some of the things it does:
- It prints money (digitally and via paper notes) – ensuring there is sufficient liquidity of money within the Economy.
- It ensures that money routes to the right areas for the benefit of wider society – ensuring that high street banks (that lend to us) are safe and reliable. It provides banking facilities to high street banks.
- The Interest Rate! The Bank of England decides the Bank Rate of interest which sets the tone of interest rates on loans and savings for us. Why? Because it wants to keep inflation in line and limit / increase spending as appropriate in the Economy. Lower interest rates increase borrowing and spending.
- The Bank of England also does more important stuff including managing the Foreign Exchange Reserves to ensure international debts can be settled and regulating the wider Banking system.
- Besides all that, it is also considered as a ‘Lender of the Last Resort’ – by this we mean that it lends money to banks that find themselves in incredible difficulty and needs funds to survive.
So the Bank of England is kind of like the ‘Bank of Mum and Dad’ in money ways, encouraging and overseeing best practice and helping to bail out the wider Banking System when things get a little too tough!